VAT charges

bluebottle said:

I have just seen a member that found a great find on ebay for a second hand item (but unfortunately it was sold very quickly) that was being sold with vat included. Its interesting they say including vat, vat can only be paid once? The car when new would had had vat added then. I see a lot of this going on from scrap dealers and it annoys the hell out of me! Am I wrong? I used to work for a second hand IT company and the director told me he couldn't charge vat as it had already been charged.

Anyone know if its true? I have always been told it is.

Click to expand...

Hi,

Yes, there is VAT on secondhand parts and yes it does then appear that it is being charged twice, once when the car was bought and again for when the parts are sold.

But unfortunately that is the law, any VAT registered person / company selling items that qualify for VAT (i.e. other than childrens clothing and food etc.) has to charge VAT.

But that statement of "includes VAT" is just a "Catch all statement", you will probably find that most car breakers are VAT registered but just sell the item at a price that includes the VAT amount but don't actually say so.

In effect it is quite often that the dealer is "taking the hit" because they set the price to what people pay, over that and they will have trouble selling the item, so they don't specifically add the VAT on top, they just pay it instead,

In effect they only pay VAT on the profit they make though, because the actual VAT is based on the difference between what they paid for something and what they sold it for. Buy something valued at £100 that is relevant for VAT means they would have to pay £120 including VAT. But they claim the £20 VAT back and then if they sell the the item for £200 they charge £240. So in the end they have to pay the HMRC £40 but have reclaimed £20. so the VAT paid to the government is £20 the tax on the "Value added" hence the term Value Added Tax !


Many taxes are unfair and VAT is one of them, but that is life unfortunately.


Steve B

Thankyou for such a comprehensive reply, rip off Britain comes to mind

An extension to Steves explanation - there is also a scheme that is commonly used with second hand goods that had no VAT to reclaim when they were purchased by the retailer. This is called the VAT Margin Scheme. Common applications of this are with used furniture, jewellery and even second hand vehicles.

To elaborate on the vehicles example; when a car is bought new by a private buyer, they are obviously not VAT registered so pay the VAT on the full purchase price from the dealer (they can't claim it back). The VAT on that vehicle has therefore been paid and does not need to be paid on the full vehicle price again when it is sold on by the owner.

The VAT Margin scheme comes in to action when the owner of the car comes to part exchange the vehicle to a dealer. There is no VAT to be claimed back and therefore it would be unfair for the dealer to have to pay 20% VAT on the full sale price of the vehicle when one sells it on. Instead, one will pay VAT on the profit margin - eg. the car is bought by the dealer for £5000 and sold for £5500, rather than the dealer having to sell the car for £5500+VAT the VAT one will pay is on the £500 margin. In this case the VAT to be paid would be around £83 (the margin is VAT inclusive and so is 1/6 of the £500 profit margin rather than 1/5 at the current VAT rate of 20%). The dealer pays the VAT. When the margin scheme is enforced the VAT cannot be itemised on the sales invoice to the customer, so even if that customer was VAT registered there would be no VAT that they could claim back. The margin scheme can also only be put into force if there was no VAT to claim back when the item was purchased. Some used cars will still be VAT-able such as those bought by rental companies and lease companies from the dealer, the margin scheme could therefore not be used with these vehicles when they are sold on at that point.

Hope that makes sense!

Cheers
Rob.

Hi Rob,

Thanks for that addtional information, very clear and accurate.

If anyone goes to the car auctions they will often hear that a car is (or is not) VAT qualifying.
Your explanation above indicates why.

By the way, secondhand commercial vehicles always attract VAT, but if the seller is not VAT registered then they cannot charge that VAT.

Steve B